Sunday, Dec 10, 2023

Will Export Ban On Wheat, Sugar & Cut In Fuel Prices Help Modi Curtail Inflation?

Will Export Ban On Wheat, Sugar & Cut In Fuel Prices Help Modi Curtail Inflation?

In its latest move to control the rising inflation, the Indian government has also slashed jet fuel prices by 1.3 per cent for the first time this year.

AP Photo

Finally, there is some good news on the horizon. According to the data released by National Statistical Office (NSO) on Tuesday, India's GDP grew by 8.7 per cent in FY2021-22, as compared to 6.6 per cent in FY2020-21. This growth is mainly attributed to a better performance by the manufacturing, mining and construction sectors.  

However, not all is rosy - the country's GDP registered its slowest pace at 4.1 per cent in the January to March quarter this year. The first, second, and third quarters recorded growth of 20.1 per cent, 8.4 per cent and 5,4 per cent in GDP, respectively. 

There are a couple of reasons for this slowdown of the economy in January to March quarter. The third Covid wave and rising inflation dented the country's GDP growth.  

The latest numbers are a cause of concern for the government. In April, the consumer price index (CPI)-based inflation hit an eight-year high of 7.79 per cent, while the wholesale price inflation (WPI) surged to a record-high of 15.08 per cent.  

The RBI's Monetary Policy Committee (MPC) raised the benchmark interest rate by 40 basis points to 4.40 in May 2022 to curb rising inflation. The central bank will likely follow suit by hiking the key repo rate by another 25-40 bps in the upcoming policy meeting in June.  

"Though inflation still poses a threat to our economy, the RBI will continue to take steps and measures to control it. Unless food and oil prices rise further, Indian companies have reported strong figures, which would help sustain the growth momentum in the future," Raghvendra Nath, Managing Director, Ladderup Wealth Management. 

However, the Indian government is well aware of the current situation and the fact that rate hikes are not an immediate solution to control inflation and the rising prices of commodities. It has, therefore, stepped in, announcing a slew of measures that would provide relief to the consumers.  

Fuel Price Cut 

In its latest move to control the rising inflation, the Indian government has also slashed jet fuel prices by 1.3 per cent for the first time this year. The development follows the hike in Aviation Turbine Fuel (ATF) prices in the previous ten rounds. The ATF, which constitutes 40 per cent of the price charged by airlines, is revised on the 1st and 16th of every month. After the latest revision, it costs Rs 120,306.99 per kl in Mumbai, and Rs 126,393 and Rs 125,725.36 respectively in Kolkata annd Chennai. With this price slash, airfares are likely to become cheaper, boosting airline travel—that is currently functioning at only 60 to 70 per cent of capacity.  

Moreover, last month, the government slashed the excise duties on petrol and diesel by Rs 8 per litre and Rs 6 per litre, respectively, to control the surging petrol and diesel prices. Retail petrol and diesel prices were also brought down by Rs 9.5 and Rs 7. While announcing this price cut, Finance Minister Nirmala Sitharaman said, "An excise duty cut on petrol and diesel will have revenue implications of around Rs 1 lakh crore a year for the government."
However, despite reducing excise duty, the base price for petrol and diesel has remained unchanged since April 6. Several states are yet to reduce the value-added tax (VAT) for petrol and diesel prices. These factors and the consistent depreciation of the Rupee against US Dollars have led to soaring petrol and diesel prices.  

"Pure excise' impact (on inflation) will be about some 20bps, and if we include the indirect impact, it would be about 40bps. Wheat prices haven't come down in the market very drastically post the export curb; they are still ruling above MSP," noted Devendra Pant, chief economist, India Ratings and Research said. "The heat conditions will impact production. FCI has not been able to keep as much stock since production was affected, which will also impact inflation. Edible oils will see some cool off in prices, but that also depends on global prices and how our currency behaves. 

Commercial LPG Rate Slashed By Rs 135 

To provide relief to the restaurant and hotel industry, the government has slashed the prices of commercial LPG cylinders by Rs 135 to Rs 2,219 per 19-kg cylinder from Rs 2,354. The commercial LPG is used by business establishments such as hotels and restaurants. Notably, before this price cut, the rates of commercial LPG cylinders were hiked by Rs 355.5 per cylinder earlier this year.  

Moreover, last month, the government announced the provision of subsidy worth Rs 200 per cylinder to Ujjawala Yojana beneficiaries for 12 cylinders in a year. This move aimed to provide relief to the rural population, where the impact of inflation has been profound over the past two years. However, in May this year, an RTI report revealed that between April 2021 and March 2022, over 90 lakh beneficiaries did not refill their cylinders, and over one crore beneficiaries have refilled their cylinders only once. 

Activist Chandrashekhar Gaur filed the RTI to Indian Oil Corporation Limited (IOCL), Hindustan Petroleum Corporation Limited (HPCL), and Bharat Petroleum Corporation Limited (BPCL). The Scheme, launched in May 2016, had a target of releasing eight crore connections by March 2020. So far, over nine crore connections have been released under the schemes annually. The government, in March, notified Lok Sabha that the LPG consumption under the Ujjawala Yojana had remained at 3.66 refills per connection annually.  

"The LPG subsidy is for Ujjwala Yojana beneficiaries. LPG price slash is unlikely to have a big impact for those who aren't under the Scheme," Pant said. 

Moreover, despite the announcement of the LPG cylinder subsidy, the prices of domestic LPG have remained unchanged at Rs 1,3003 per 14.2 kg cylinder. Also, the prices of domestic LPG have been hiked by at least Rs 193.5 per cylinder since April last year.   

Export Ban On Wheat And Sugar 

In a measure to ensure that the soaring inflation and the supply-chain crunch entailed by the geopolitical tension in Europe would not dwindle the food reserves in the country, the government had last month announced a ban on wheat and sugar exports from June 1. Additionally, the government had capped the sugar exports to 10 million tonnes by May 31. India is the second-largest producer of both wheat and sugar. 

The development came as India witnessed record exports of wheat and sugar in the previous months. In March, the country exported a record 8.2 million tonnes of wheat. Moreover, India received export contracts for 90 LMT sugar during this year's sugar season. Of this, 82 LMT of sugar was dispatched from sugar mills for export, and about 78 LMT was exported. Sugar season usually follows the September to October calendar.  

Notably, a government official had earlier told Reuters that despite the record output of sugar, uncontrolled exports would lead to scarcity of domestic stocks and a spike in sugar prices, especially during festive seasons.